Table of Contents

What You Should Know About Mortality Credits

Stan Haithcock
September 19, 2022
What You Should Know About Mortality Credits

Diving Into the Annuity Pool

Glad you’re joining me about how to buy an annuity, looking at mortality credits, and why that is so, so, so important. So, the big question is, what's a mortality credit? It's the pooling of everyone in your age group, pooling you together and your life expectancy, and taking advantage of the pooling of that risk with all of you.

A good friend of mine's name is Tom Hegna, and if you go to the Fun With Annuities® YouTube channel, I have a podcast I do every week, and Tom has been a regular guest and explains mortality credits like this… Imagine there are five ladies who are all 80 years old and go on a road trip. And they get to the hotel and sit around drinking their good glass of wine, saying, "Let's all put a hundred dollars into this box, and then the survivor gets to keep all of it." Right? So, they did that $500.

The next year, they go on this trip, and unfortunately, one of their friends passed away, but there were four of them sitting there, and there's still $500 in there. Right? So, they're all taking advantage of that $500. Next year, they are going on the same trip. There are three of them there. There's still the $500. Now, Tom goes into the details and the percentages. But what I wanted to kind of layout to you is, in essence, what mortality credits are all about. You're benefiting from everybody, the life expectancy from everybody your age; everybody’s putting money in. And that's why the annuity company can pay out that amount for your life as long as you're breathing because they're factoring in everybody your age. Some are going to live longer than their life expectancy. Some are going to live shorter than their life expectancy. But that's the transfer of risk nature of a lifetime income stream when the pricing of that lifetime income stream is based on life expectancy and mortality credits.

Transfer of Risk

That's the reason I say there's no ROI until you die. Up until that point, it is a transfer of risk. So, my favorite caller is the typical call I get from Chester. Chester's the uncle at the family reunion. Everyone has it. And he corners you in the corner and talks to you for three hours about politics. And Chester calls up and goes, "Well, I ain't going to buy this. I'm not buying this lifetime income annuity because I'm waiting on interest rates to move." And everybody does that. Chester's not alone; everybody calls me and says something similar: “Well, I'd like to buy the lifetime income product, the immediate annuity, Deferred Income Annuity, or Qualified Longevity Annuity Contract, or income rider.

Interest Rates

I want to buy that lifetime income product when interest rates are higher, Stan The Annuity Man, America's annuity agent®. Can you tell me when those interest rates will be higher? The answer is no, but that's not a good question. The good question is, does that even make sense? And the answer is no; interest rates play a secondary pricing role. Mortality credits drive the pricing train; the life income is driven by the life expectancy/mortality credits. That drives the train, the pooling of risk for people your age and life expectancy. Now, what you have to understand with mortality credits, and life expectancy does not equate to opportunity or market growth.

Income Stream

When looking at mortality credits and life expectancy for lifetime income, you're looking at transferring risk. You're looking at ensuring that contractually that income stream will hit your bank account every month until you die. As long as you're breathing, that income is going to continue. Sound familiar? It should—social security. Social security is the best inflation annuity on the planet. I keep telling you that because I want you to understand that annuity. Even though you might say you hate annuities, you already own one. So, if you're adding to that income floor, you have the lifetime income from your social security, which is the best inflation annuity on the planet. And if you don't believe that at the time of this taping, next year, that increase to your social security should be a doozy. It should be a good one.

And it will prove that that is the best inflation annuity on the planet. But when you're looking at lifetime income to add to that for that income floor, and that income floor is that monthly amount that's hitting your bank account every single month, regardless of who's in office or what's happening, mortality credits drive the pricing train for lifetime income, period. So, the younger you are, the lower the payment. Why? Because you have more life expectancy, which means there's going to be more payments, which means those payments are going to be lower. If you're older, there's less life expectancy, therefore, fewer payments, which means the payments will be higher.

Mortality credits drive the pricing train for lifetime income.

Social Security

Here's the call I get all the time. Should I take social security at 65, Stan The Annuity Man®? Or should I wait till 70? That is not a good answer. Just bad sales pitches, as I always say. At 70, the payments will be higher because you're older. Should you wait to 70 or take them at 65? No good answer to that. Why? Because at 65, you’ll get payments, and if you wait to 70, you have to factor in the 60 payments you missed to wait to 70. And how long is that going to take to make up? Remember, annuities are math. This isn’t emotional. Yes, I'm emotional. Yes, I'm gregarious and happy and glass half full. I am because I think annuities can provide that lifestyle you're looking for, that guarantee you're looking for, that transfer of risk you're looking for.

Still, there’s no perfect answer to when you should buy a lifetime income annuity or when you should turn on your social security. There's no good answer. It all comes down to your goals, period. So, you need to think about how much money I need to add to my income floor? Should I start it now? Should I live now? Remember what I always tell people; all my clients know this. I always say, "There are no U-Hauls behind hearses." I say that for a reason, I want you to live your life. I want you to spend your money.

Now or Later

Should you turn on the income stream sooner than later? Unless you are popped into a higher tax bracket, and that bothers you, I'm going to tell you to turn it on sooner than later. Why? Because I want you to live your life. I want annuities to provide that lifestyle for you. I want annuities for lifetime income to provide that transfer of risk income floor. You are working those mortality credits to your favor because you're pulling that risk with everyone else at your age.

So, when you talk about how to buy an annuity and buy it for income, considering life expectancy and mortality credits, I think it's an opportunity. And the opportunity is you're piggybacking off all those other people your age to get a higher income because you're all kind of pulling that risk and transferring that risk for that income. Remember that story I told about the five ladies going on the trip and putting a hundred dollars in a box? That's the way you should look at mortality credits, you're pooling the money, and you're all going to benefit, period. Whether you live longer, shorter, or whatever, you’ll benefit because you’ll get a lifetime income.

Never forget to live in reality, not the dream, with annuities and contractual guarantees! You can use our calculators, get all six of my books for free, and most importantly book a call with me so we can discuss what works best for your specific situation.

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